Week in review (18-Aug-2017)

It was a bit of a roller coaster for stocks this week.  After stocks were down big last week, stocks shot up over 1% on Monday but gave all those gains back and more on Thursday.  The week ended with US stocks down 1% for the week, Pacific stocks up 1% for the week and European and Emerging stocks in between.

 

Merck CEO quits President’s advisory team

Similar to last week, the biggest business news story was a very important social story that cast a shadow over everything: The despicable neo-Nazi terrorist attack that left one woman dead horrified the country.

However, the real story became President Trump’s response.  His delay in overtly condemning white supremacists lead to public outcry.  Merck’s CEO, Kenneth Frazier, was the first of several leaders who cut ties with the president by leaving his American Manufacturing Council.  As the story continued to spiral, Trump eventually disbanded the council.

Given the racial overtones here, Frazier’s departure is particularly notable in that he is one of only five black CEOs of Fortune 500 companies.

 

Chinese company tries to buy Chrysler

Rumors circulated on Monday there was a Chinese suitor looking to buy Fiat Chrysler.  This is interesting just because Chrysler has been bought and sold a few times, first to Mercedes and then to Fiat.  I’m not sure any of those transactions worked out well for the buyer.  Now it might be a Chinese company.

Second, and more broadly to the market, I think merger and acquisition activities are generally positive.  If a purchase is made, it will certainly be at a premium over Fiat Chrysler’s current market value.  That’s good for Fiat Chrysler’s shareholders in particular, but it’s good more broadly in that it shows that there are companies out there who look at assets and think they can do it better, and they’re willing to put their money where their mouth is.  It will be interesting to see how this unfolds.

 

Amazon creates pickup locations

Amazon continues to change the world.  They announced this week that they are piloting locations where you can order something online and then go pick it up minutes later.  It’s easy to see how this can be tremendously convenient.  It’s also not a big leap, if this is successful, to see this concept expanding to the point where we eventually get on-demand, nearly instantly-delivered products.

I kind of feel like twenty years from now this is how the world we’ll go, and we’ll be telling our kids how things were before 2017.  They’ll look at us like we were crazy to have to wait a couple days to get stuff online.  From a stock perspective there are going to be huge winners that are going to enjoy tremendous value creation as they make our lives easier.  Who knows if Amazon is going to be one of those winner, but it’s certainly hard to imagine them not being there based on their current winning streak.

 

China’s Alibaba shows tremendous growth

Amazon may be taking over the world, but there are other companies that are playing in the game too.  Alibaba, which is basically China’s version of Amazon, has been growing tremendously.  On Thursday they announced they grew over 50% to have quarterly revenue of about $7 billion.  That’s a far cry from Amazon’s $38 billion a quarter, but who knows?

The world of retail is changing in unimaginable ways.  The world of international commerce is also changing and the opportunities presented in China are unimaginably promising.  Like the note above on Amazon, I think Abibaba is also good news for the stock market.  Obviously shareholders of Alibaba are doing well, but this is a real rising tide raises all ships.  As Alibaba does well they are serving new and richer consumers who really haven’t been served before.  That’s a lot of upside, and that translates to good news for the companies that are involved in that and by extension their shareholders.

 

Foot Locker plummets

Since we’ve spent so much time talking about retail and how it’s changing, it seems appropriate that the week ended with an old-model retailer, Foot Locker, missing earnings big and their stock plummeting.  It’s pretty amazing to see such a colossal transition happen so quickly.

Foot Lockers were staples in the mall, where a teenage Stocky and his friends would marvel at the new Jordans, wishing our parents would give us a $150 to spend on a pair of shoes.  Foot Locker’s employee uniforms (black and white striped referee shirts) entered the sports lexicon when fans would complain that refs who made a bad call should “go back to Foot Locker.”

And now it looks like it’s ending.  Another brick and mortar retailer is being replaced by a better, faster, cheaper online buying experience.  As consumers, we’re benefiting and as shareholders we are (so long as you don’t own Foot Locker).  While the tide is rising, there are individual winners and losers, and it’s a bit nostalgic to see one of those titans from yesterday in the process of crumbling.

One thought to “Week in review (18-Aug-2017)”

  1. Thanks for this wrap-up. Another day, another embarrassment for Trump (and to the US for having elected him). You failed to mention Trump’s childish, sour grapes tweet thrown at Merck’s Frazier, essentially saying good riddance and how he should work on reducing pharma prices. That tweet was only bested last week by his admiration of General Pershing’s solution of executing Islamic terrorists with bullets dipped in pig’s blood. Whoa, the U.S. and international community should totally do that – it would solve everything! Has there every been a president so childish, obtuse, and unenlightened? At some point, people need to stop making excuses for him, i.e., he is or will be effective but is just short-tempered, rough around the edges, or impulsive. He’s also entirely incompetent and unintelligent, and the absolute furthest thing from a wise leader. What a joke of a man. Sad! Disgusting! (As a disclaimer, I voted for Hillary but only as the lesser of two evils.)

    So, after having said all that, I actually have a question relevant to this blog: At what point, if there is one, should we consider pulling our money out of stocks and investments and holding cash, based on the disorder, confusion, and unbelievable uncertainty this tiny man of a president is causing domestically and abroad? Are there any telltale signals? I also ask because the housing market and stock market are at historic highs, and seem due for a pullback. I know its impossible to time the market this way, but just wondering perhaps there is an exception under extraordinary times.

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